Zipcar: Refining the Business Model Video (DVD) Harvard Case Solution & Analysis

ZipCar: Refining the Business Model

Q1.) Evaluate this potential venture and the progress Chase has made.

The potential venture consists of four different investors including the two women Robin Chase and Antje Danielson and two other investors. The venture began with the idea of car-sharing concept, since the idea is new and growing rapidly; hence, the potential venture is going to be a very successful business. However, the co-founder of the venture, Danielson is not treating the car-sharing business as her first priority because she is not willing to work for the business on full time basis. On the other hand, Chase is putting all her efforts in order to develop the business model; she is also struggling for funding requirements to meet business expenses but her experience is not enough to support the business development needs. Chase and Danielson are not drawing any salary for the business in order to reduce the expenses and funding requirements of the growing business. Chase has developed a technology for monitoring car service and gathering consumer data usage, which will enable ZipCar to collect the required data on timely basis; hence, the onetime cost of developing and implementing the technology will reduce the operating cost for future operations. Moreover, Chase has invested $50,000 in the business and Danielson on the other hand has a good experience of car industry but she is not putting her full efforts for the potential growth of the business. Additionally, two other investors who have invested in convertible loans will be converted into equity shares at some later time, consequently, it will the current equity structure.

Additionally, Chase’s progress towards the licensing of developed technology will give ZipCar a competitive advantage. In addition, ZipCar is capturing higher part of the growing market and demand led need for new cars exceeded the expectations. Moreover, in order to make vehicles easily accessible in a short period of time, ZipCar vehicle was spread over different locations. Meanwhile, Chase decided to launch her business in Boston in order to exploit the opportunities available in terms of expected users of ZipCar. Moreover, Chase has also managed to gather some costing data relating to the acquisition of vehicle along with overheads and then using her intelligence she separated the cost relevant directly associated with Boston overhead in order to further evaluate the performance of Boston operations. Chase has contributed in further evaluation of growth prospect and searched for the funds required for the business.

Q2. ) What is the business model, and how has it changed between December 1999 and May 2000?  What do the data from actual operations in September say about how the business model is playing out in practice?  Does this data give you comfort or concern?

ZipCar business model is based on technology and information technology led operation in order to offer its customer the experience of owning a car without the need for excessive payments or using rent a car services; it identifies the untapped potential customers who give value to environment friendly business. Moreover, the financing of business is based on equity investment along with issuance of convertible loans to venture capitalist.

ZipCar’s business model is based on the car-sharing system, which is offered to members and the business generates its revenues from membership fee and some utilization based charges to its members. Moreover, members can book a car within a second using the online web portal and access the car at the nearest parked ZipCar vehicle that provides its customers with ease of access to transportation services.

Since ZipCar give value to its customers through improved service at possible least cost, therefore, Chase expected that customers would not be willing to pay a high membership fee; hence, she reduced the membership fee by 75% from May 1999 to December 1999. Moreover, hourly rates were increased to an average fee of $5.50 per hour and Chase realized that parking would not be available free of cost, consequently, she made a provision of $600 per average vehicle in order to make the estimates more reasonable. Additionally, lease cost and cost of accessing equipments were also increased to reflect more realistic cash flows. However, customer retention ratio was also decreased, which is not a good sign in a growing market.

Analysis of September’s actual results and anticipated monthly operations reveals that attrition rate has increased to 26%; which means that 74% of members did not renew their membership and the anticipated renewal rate was 15%, however, it was estimated that 37 new memberships will be gained but actual results of September shows that 101 new members has registered at the same estimated annual fee of $75 per member. Additionally, average trips per member have been reduced to 1.76 per member but miles traveled and hours used during September have increased to a great extent due to the introduction of $44 fee..................................

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Robin Chase discusses issues related to the business model of Zipcar and financial plan. "Hide
by Michael J. Roberts Source: Video Supplement Publication Date: 01 Oct 2005. Prod. #: 806717-VID-ENG

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